With the RRSP contribution deadline just weeks away, many Canadian’s are in the midst of navigating the wide-array of investment options available and could be missing the opportunity to build wealth through a Tax Free Savings Account (TFSA).
While TFSAs are commonly viewed as an emergency savings account or a good place to park cash, TFSAs can also be an effective long-term wealth-building vehicle.
According to Gurbinder Mander, branch manager at the North Delta branch of Envision Financial, a division of First West Credit Union, TFSAs can be an excellent complement to RRSPs. However, he suggests considering the following before making the decision to invest, or not to invest, in a TFSA:
- TFSA’s allow you to withdraw funds at any time and for any reason without incurring tax.
- The income earned and capital gains under a TFSA will be tax-sheltered.
- Any unused contribution room may be carried forward and contributed in a future year.
- Withdrawals (capital and income) will create contribution room for future savings, however, they cannot be re-contributed until the following calendar year without the risk of penalty.
- Contributions are not tax deductible.
While the benefits of a TFSA typically overshadow the drawbacks, taking the time to develop a financial plan with an investment professional—a free service with many financial institutions, including Envision Financial—will help you make an informed decision.